Congress: Withhold Taxes From Contractors Congress has voted to require withholding of taxes on most payments to federal, state and local contractors beginning in 2011. Organizations representing local governments denounced the provision as an intolerable burden and an unfunded federal mandate. The amendment was added in a House-Senate conference committee on the tax cut legislation, H.R. 4297. Neither house of Congress had voted on it before it was inserted by the conference committee. The House passed the bill May 10 and the Senate followed suit the next day. President Bush signed it into law May 17. It would require government agencies to withhold 3% of payments to contractors. According to a report on the bill, it would raise $7 billion over five years. The provision is apparently the result of findings by the Government Accountability Office that federal contractors owed billions of dollars in back taxes. “What about the fact that many, many small contractors are owed hundreds — even millions — of dollars by the U.S. government?” commented Hank Wilfong, president of the National Association of Small Disadvantaged Businesses, in an e-mail message. “DOD is, by the way, one of the biggest debtors.” Sen. Larry Craig (R-ID) said he voted for the tax cut bill, but added that he will work to repeal the withholding provision before it takes effect. “Some say it is to improve compliance by ‘closing a tax loophole’ that allows some taxpayers to avoid their tax obligations,” he told the Senate May 11. “There is no such ‘loophole’ — the IRS has simply failed to do its job of collecting and aims to shift this responsibility elsewhere.” Three local-government organizations, the National Association of Counties, the National League of Cities and the Government Finance Officers Association, tried unsuccessfully to block the amendment. They wrote to senators that it would “put counties and cities at a severe competitive disadvantage to the private sector in purchasing goods and services.”